(Close) shave and a haircut

Sometimes in this business, the industry-watcher side of the brain and the consumer side of the brain have a hard time getting into sync.

Such was the case last week when first MasterCard and then Visa announced that they had reached a settlement with Wal-Mart and other merchants regarding their debit card practices.

The independent settlements were nailed down just as a trial on the matter was set to get under way in Brooklyn, NY. The original lawsuit, brought in 1996 by the National Retail Federation and 20 of the country's largest retailers, contended that the credit companies' requirement that retailers "honor all cards" — including Visa Check and Master Money cards — violated federal anti-trust law.

The crux of the problem, ironically, was convenience. The cards carry higher transaction fees than independent bank debit cards when a consumer signs for a transaction instead of punching in a PIN number. Obviously, for both consumer and retailer, the swipe and sign purchase method is preferable because it speeds shoppers through the check-out process.

Merchants pay a flat fee of between $0.10 and $0.15 when a customer uses a PIN on a debit card transaction, but when a customer signs a sales slip, Visa and MasterCard hit up the retailer for a percentage of the sale — most often between 1.5 percent and 2.0 percent. Merchants understandably cried foul, arguing that the extra cost ultimately rolled over into their pricing structure, thereby preventing them from offering the most competitive pricing possible to their shoppers.

Although that system remains in place for the time being, Visa and MasterCard last week agreed to substantially reduce fees for signature transactions before Jan. 1, 2004. In addition, MasterCard agreed to pay retailers damages of roughly $1 billion and Visa settled for damages of about $2 billion. The payback will be divvied up among the retailers represented in the suit. Also, merchants will no longer be required to accept the debit cards — although the fact that debits are so widely used by consumers suggests that they will continue to do so.

"That's a victory for both retailers and consumers because high fees have driven up the price of every product sold. Visa and MasterCard have charged merchants more than $1 extra on every $100 spent whenever a debit card user signs for a purchase," according to Mallory Duncan, the NRF's senior vp and general counsel. "This settlement will eliminate that extra charge and save American consumers billions of dollars."

I'm not so sure about that. The industry-watcher in me gives credit to the retail community for casting off another chunk of its cost structure. But the consumer in me can't help thinking the cost is going to wind up in my lap.

Visa and MasterCard are going to suddenly kiss a piece of revenue goodbye, and I can't help thinking they'll compensate by shifting the burden to the cardholder.

A good deal for consumers? I don't know. Seems to me that while retailers will shave a point off SG&A, it's the consumers who will wind up getting a haircut.